foxex: SOUR APPLE

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Friday's headlines-

1. What happens after three consecutive 1% rallies

2. Apple sours for Buffett

3. Chart of the day: Apple plunges into correction

Markets Close

Dow
25,269.40 -0.44%

S&P
2,722.77 -0.64%

Nasdaq
7,356.99 -1.04%

VIX
19.55 +1.08%

Bitcoin*
6,399.67 +0.28%

EUR/USD*
1.1395 -0.19%

*Currency markets and Bitcoin trade 24 hours, the figures here indicate movements between 9am and 4pm ET

1 - What happens after three consecutive 1% rallies

November looked so promising…

Markets soured today and culprits are everywhere. Was it:

No progress or meaningful advancements in the U.S. trade war with China?

President co-opting the Game of Thrones meme to convey his threats?

Apple reining in revenue expectation for the rest of the year and deciding not to report unit sales of iPhones in the future? Not very transparent...

A jobs report that showed robust hiring, meager productivity gains, and higher wage growth? Recession Watch

More sellers than buyers after a three day rally that made us all feel aglow?

You can take your pick or add in a few selections of your own, but sentiment was sour from the start and stayed that way. It was not one of those rip your face off down days that typified Bloody October. It was polite and orderly, but still stung.

Why it Matters: The sell-off itself doesn't matter too much in the grand scheme of things, but it does tell us that rallies are short lived in times of volatility, and institutional investors who really control the market will take profits as soon as they can and probably don't want to go into a weekend, preceding a midterm election, long the market. It's too risky. What's interesting, though, is that we were riding high on 3 consecutive days of gains of over 1 percent on the S&P 500. According to research from LPL Financial, that usually translates into robust gains 3, 6 and 12 months later. We are not saying that won't happen given today's declines, but it's not a good start to follow that trend. Have a look:

Courtesy: LPL Financial Research

What's Next: You know what's next. Midterm elections on Tuesday in the U.S. It's not a stretch to say that Trump's agenda is at stake with a little over two years to go in his term. If Democrats win the House, they will combat every policy move he wants to make that requires their vote. If Republicans win the House and maintain control of the Senate, expect a steamrolling wave of regulatory rollbacks, heavy spending on defense, and infrastructure, a complete unwinding of the Affordable Care Act and anti-immigration policies that may very well lead to the wall Trump promised to build from day one.

The FOMC will also meet on November 7-8th, and expect that Jerome Powell will announce another interest rate hike. The jobs report basically guarantees it given the low unemployment rate and wage increases. Meanwhile, inflation is creeping up. Everything from rolled aluminum to cookies are more expensive today than earlier this year as companies raise prices to feed demand and absorb higher labor and material costs. This has a lot of people using the "R" word. Recession… it's ok to say it. No one thinks we are on the verge of a recession, but plenty of people think we are headed right for one in the next 6 to 18 months. Prepare!
Read More:
JPMorgan Says 2019 May Be 'Seminal' Year of Rising Risk
How inflation and unemployment are related
What The Unemployment Rate Doesn't Tell Us

#2 - Apple falls on Buffett
It's remarkable that a company which generated $90 billion a quarter and beat profit expectations in every which way gets punished by investors the way Apple did. But that's the environment we are in. The stock fell nearly 7 percent today, dragging the S&P 500 down with it. Remember - Apple is the heaviest component on that market weighted index. It lost its $1 trillion market value and delivered a painful hit to Warren Buffett's bottom line, given that his Berkshire Hathaway is one of the largest shareholders of the company with 250 million shares, according to the company's recent SEC filing. Today's loss knocked $3 billion off Berkshire Hathaway's stake. If you think Buffett is panicking, you don't know Warren.

Why it Matters: Beyond Apple's heavy influence on the overall market, it's also a harbinger of consumer spending on technology and electronics. If it feels softness from the consumer going into the holiday season, that's not good for anyone. The stock fell into correction territory (down 10 percent or more from its recent peak), and is our Chart of the Day, below.

What's Next: Buffett's Berkshire Hathaway reports earnings tomorrow. It's one of the few companies that likes to drop its quarterly report on the weekend to wreck it for editors like us. It's always an interesting read, but we will be looking very closely to see if it added or reduced its position in Apple or any of its major holdings. Remember, besides being a holding company for other entities like Geico, Fruit of the Loom, MidAmerican Energy Company and NetJets, among others, Berkshire owns massive chunks of publicly traded companies like Coca-Cola, Kraft Heinz and Bank of America. When Buffett wants to own your stock, it's the ultimate endorsement.

Bonus factoid: Scott Galloway, a Professor of Finance at NYU, best-selling author, and early-stage investor, ran the numbers on the ridiculous amount of money Apple and other tech companies generate by the hour. You can't do anything with this information, except wonder at it and discuss at a dinner party if nothing else comes up. But here it is, courtesy of @profgalloway

Revenue generated each hour:

Apple      $29.1 million per hour
Amazon $26.2 million per hour
Google    $15.6 million per hour
MSFT      $13.5 million per hour
Intel         $8.9 million per hour
FB           $6.4 million per hour
NFLX       $1.9 million per hour

Read more:
If You Had Invested Right After Apple's IPO
Top 5 Positions in Warren Buffett's Portfolio

Chart of the Day: Apple plunges into correction
It's far from unheard of for Apple's stock to fall into correction territory, which is generally defined as a drop of 10% or more from a stock's most recent price peak. This year, two corrections have already happened – one in January-February and another in March-April.

On Friday, in the aftermath of Apple's latest earnings release, the stock gapped down and slid into correction yet again, falling at one point more than 7% below Thursday's close as investors digested the mixed news. Despite the company's earnings beat, Apple issued a disappointing forecast and announced that sales figures for the iPhone and other key products would no longer be released.

Bearish sentiment ruled the day for Apple, helping to weigh further on the broader indexes, and the stock entered into a correction at one point well more than 11% down from its early October, all-time closing high around $232.

The earlier corrections this year both resulted in relatively quick reversals back in the direction of the prevailing uptrend, as is often the case for Apple's stock. Will such a swift recovery happen this time around? The chances may be good, as the technicals continue to support a continuation of the longstanding bullish trend after correction.